Bucks Arena Financing Advances

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CHICAGO – The Wisconsin Center District board formally signed off Friday on a more than $200 million bond financing for the new Milwaukee Bucks arena, paving the way for a June sale.

State capital finance director David Erdman and finance team members outlined the planned the borrowing for the board at its meeting Friday, highlighting the fortuitous market timing of the sale that will benefit from a drop in interest rates since the earlier stages of planning.

The deal will include multiple series with about $115 million backed by a state appropriation and another series for about $50 million backed by various taxes currently collected by the district. Interest on both will be exempt from Wisconsin state income tax, which is rare because most state debt is subject to state income taxes.

The district receives revenue from a tax on hotel rooms, local food and beverages, and car rentals. Specifically, it collects a 2.5% on rooms, 3% on car rentals, and 0.5% on food and beverage sales in Milwaukee County. It also receives a 7% hotel room tax formerly collected by the city of Milwaukee. The taxes generated $29 million in 2014.

A third series for $38 million of taxable securities will be repaid with various team and ticket related revenue that could run afoul of federal tax regulations for tax-exempt borrowing.

The board had previously named Morgan Stanley as the book-running senior manager with Robert W. Baird & Co. as financial advisor and Quarles & Brady LLP as bond and disclosure counsel. The underwriting syndicate has been rounded out to include Stifel as a co-senior manager with Citi, Ramirez & Co., Siebert, Brandford Shank & Co., RBC Capital Markets and US Bancorp as co-managers.

The district's outstanding debt stood at $178 million in fiscal 2014 and is retired in 2032. "We will have to structure this deal around the other obligations," Erdman said in an interview last week.

The district last sold debt in 2013 in a refunding. Moody's Investors Service rates the district's existing senior-lien debt A2 and a portion of outstanding junior debt Baa1. The new deal will represent a new credit and the financing team is seeking ratings from Moody's and S&P Global Ratings.

The financing will raise $203 million under terms of a financing package state lawmakers approved last year. The city of Milwaukee is contributing $47 million to cover the costs of a parking structure and convert existing space into a public plaza. The city also plans to be in the market next month with its arena borrowing. The new venue will be just north of the arena it will replace – the BMO Bradley Center.

The National Basketball Association team's owners, Wes Edens and Marc Lasry, and its former owner, former Sen. Herb Kohl, will contribute the other $250 million needed to cover the full cost of the arena, and the team is responsible for cost overruns. The project's cost was recently raised from $500 million to $525 million.

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